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Spending cuts, shutdown lower US budget deficit

By CHRISTOPHER S. RUGABERAP Economics Writer

WASHINGTON (AP) — The U.S. government started the first month of the 2014 budget year with a smaller budget deficit, signaling further improvement in the nation’s finances at a time when lawmakers are wrestling to reach a deal to keep the government open past January.

The Treasury Department said Wednesday that the deficit in October was $91.6 billion. That’s 24 percent lower than the $120 billion imbalance recorded in October 2012. The deficit is the gap between the government’s tax revenue and spending.

Across-the-board spending cuts and the partial government shutdown helped reduce expenditures last month, the first of the new budget year. Higher taxes and a better economy also boosted revenue.

The October decline comes after the government ran an annual deficit of $680 billion in the budget year that ended on Sept. 30. That was the lowest in five years and the first in that period below $1 trillion. It’s also half the record $1.4 trillion gap reported in 2009.

Yet the shrinking deficit is not expected to take much pressure off of lawmakers, who are facing an informal Dec. 13 deadline to reach a deal to fund government and avoid another shutdown.

Stanley Collender, a budget expert at Qorvis Communications, says the decline is likely to have little impact on those talks because most Americans still see a $680 billion budget gap as too large.

“The economics of the budget are the least important part of it,” he said. “It’s all perception.”

Last year’s annual deficit was still the fifth-largest in history. And it added to the nation’s record $16.7 trillion debt. Lawmakers are also debating whether or not to raise the borrowing limit, a necessary step to avoid an economy-jarring default.

Lawmakers aren’t likely to reach a sweeping deficit-reduction deal in the current talks, Collender said. So they have little incentive to call attention to how large the deficit still is.

And those seeking more cuts also see little reason to highlight how much progress has been made, he said.

The improvement in the economy has put more people back to work and boosted corporate profits. And Social Security taxes increased at the beginning of the year, along with income tax rates on wealthier Americans. As a result, total tax revenue has increased.

In October, tax revenue rose 8 percent compared with a year earlier to $199 billion.

Spending fell 5 percent in October to $290.5 billion, mostly because of the across the board cuts that took effect in March. Some of the spending may have been delayed by the shutdown and could take place in November, pushing up the deficit next month. But some of that delayed spending, as well as back pay for furloughed federal workers, likely occurred in October after the shutdown ended Oct. 16.

A fight over the budget and President Obama’s health care program led to the 16-day shutdown. The battle ended with only a temporary agreement to re-open the government until Jan. 15. And the borrowing limit was extended to just Feb. 7.

Congressional leaders also agreed to set up a House-Senate conference committee that is seeking a budget deal to avoid another shutdown next year.

That committee held a public hearing Wednesday that made little apparent progress. It mostly consisted of speeches by members of Congress and testimony by Douglas Elmendorf, director of the Congressional Budget Office.

A top priority for many lawmakers is to replace the automatic spending cuts scheduled for 2014, which are expected to have a greater impact on the budget. Many agencies used spare cash last year to offset some of the cuts. That’s unlikely to be an option this year.

Private talks between House Budget Committee Chairman Paul Ryan, R-Wis., and his Senate counterpart, Patty Murray, D-Wash., are focused on replacing the across the board cuts with other spending reductions and special interest tax breaks.

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